Are R&D Tax Credits Available in Utah?

Yes. The state of Utah Research and Development (R&D) Tax Credit is a non-refundable tax credit available to taxpayers with qualifying research expenditures in Utah. The R&D Tax Credit mirrors the federal Section 41 Credit for Increasing Research activities with a few exceptions. Below are some of the highlights of the Utah R&D Tax Credit:

  • The Utah R&D Tax Credit is permanent and does not expire.
  • The definition of qualifying research expenditures is the same as the federal Section 41 definition with the exception that only qualifying research expenses incurred in Utah may be captured towards the credit.
  • Gross receipts are only those attributable to sources within Utah.
  • The Utah research and development tax credit is the sum of:
    • 5% of a taxpayer's qualified spending that exceed the base amount;
    • 5% of payments made to qualified organizations for basic research in Utah that exceed the base amount; and
    • 5% of qualified research expenses for the taxable year.
  • Credits calculated as 5% of taxpayers research expenses and basic research payments that exceed a taxpayer's tax liability may be carried forward for a period of 14 years.
  • Credits calculated using 7.5% of a taxpayer's qualified research expenses may not be carried forward.

Utah R&D Tax Credit Case Study

A Utah-based sporting goods manufacturer employs close to one hundred employees in its Salt Lake City offices. The Company has been claiming the research and development tax credit for many years for activities around the development and improvement of their sporting goods and protective wear. This project involved a multi-year study.

The Company qualified for the federal R&D Tax Credits of $370,500 and an additional $370,500 in State R&D Tax Credits.

FEDERAL
UTAH
Year
Total QREs
Credit
Total QREs
Credit
2021
$1,100,000
$110,000
$1,100,000
$110,000
2020
950,000
95,000
950,000
95,000
2019
875,000
87,500
875,000
87,500
2018
780,000
78,000
780,000
78,000
Total $3,705,000 $370,500 $3,705,000 $370,500

You can read more about this Utah tax credit case study here.

Four-Part Test

Qualified research activities are defined by the four-part test outlined below

Technological in Nature

Activities must fundamentally rely on the principles of physical or biological science, engineering, or computer science.

Permitted Purpose

Activities must be performed in an attempt to improve the functionality, performance, reliability, or quality of a new or existing business component.

Eliminate Uncertainty

Activities intended to discover information that could eliminate technical uncertainty concerning the development or improvement of a product.

Experimentation

All activities must include a process of experimentation including testing, modeling, simulating, and systematic trial and error.